News Bites

Gold Is Russian Answer To U.S. Dollar Dominance - CPM Group

(Kitco News) - Russia’s increased purchases of gold is not a red flag, but a clear message of diversification away from the U.S. dollar and its “monetary hegemony,” according to Jeff Christian, the CPM Group managing director.

In October, Russia added another 21 metric tons of gold, which tripled the amount over the last decade and brought the overall total to 1,800 tons.

But, it’s “business as usual for Russia,” Christian told Kitco News at the Silver & Gold Summit in San Francisco. “[Russia is] finally able to execute on a long-term desire to rebuild their [gold] inventories and to diversify away from the dollar.”

Russia has witnessed most of its gold reserves sold off after the breakup of the Soviet Union, which it has been attempting to regain since about 1997, Christian pointed out.

“In 1997 to 2005 [Russia] didn’t have the foreign exchange and capital inflows needed to convert money to gold. But, as the oil, palladium, and nickel prices started rising in 2005, all of a sudden, Russia's economy had a massive inflow of U.S. dollars.”

But, the Russian government quickly realized that it had a problem relying on the U.S. currency, said Christian.

“Russia had a massive inflow of U.S. dollars at a time when the U.S. government was increasingly hostile toward the Russian government,” he noted, adding that Russia decided to diversify away from the American currency.

Christian added that Russia is not alone in sending this kind of message of diversification, highlighting that China as well as many other countries are on the same page.

“China in Q1 2009 bought a lot of gold that was supposed to go to China Investment Corp, the sovereign wealth fund. And instead, the government decided to add it to monetary reserves to send a message to the U.S. Treasury that China can in fact diversify monetary reserves,” he said.

Change is in the air, according to Christian: “There is a great dissatisfaction with the monetary hegemony that the U.S. has exercised since WWII and [the world] will move towards some sort of post-Bretton Wood floating exchange rate program at some point in the future.”

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